It's a Topsy, Topsy, Turvy, Turvy World!

The Axioms

For as long as I can remember, some things have been accepted as axiomatic
by all of us: the `original' NRI's (Non-Resident Indians), the `other'
NRI's (Not Really Indians, also known as RNI's -- Resident Non-Indians), RRI's
(Resident Real Indians), R2I's (Returned to Indians), and the rest.
If I may paraphrase Thomas Jefferson, I would say: We the people hold the
following truths to be self-evident:

That the Rupee will always depreciate against the dollar (US dollar naturally
-- is there any other kind?).
That the inflation rate will always be higher in India than in the US.
That the job market will always be better in the US than in India.
That the standard of living will always be higher in the US than in India.

So accustomed are we to accepting these premises without question that
we have thoroughly internalized them -- we no longer consider these as overt
externally introduced assumptions, but treat them as immutable laws of life,
like Newton's three laws and Maxwell's four equations.

The Reality

But now things have gone topsy turvy in this land of India that is Bharat.
As Marc Antony said ``Oh what a fall was there my countrymen!''
Just consider the following facts:

The Rupee

After depreciating steadily against the US dollar (from 31.37 to the dollar
in 1991 to 49.07 to the dollar in 2001), the Rupee has now appreciated
against the dollar, and is now at 48 to the dollar.
In fact, but for active intervention by the Reserve Bank of India, the
Rupee would appreciate by another 2.5% against major currencies, including
the US dollar.
India's foreign exchange reserves, which hit rock bottom at less than $ 1 BB
(that's billion) back in 1991, are now at $ 68.5 BB and climbing steeply.
Too steeply as a matter of fact.
If the RBI did not `sterilize' these massive
dollar inflows, the Rupee would appreciate even faster than it is at present.
The `merchandise' trade of India shows a deficit only because the Indian
government perversely insists on counting India's massive software exports of
$ 8.2 billion under a strange head called `invisibles.'
Its outdated rationale is that, since no material changes hands, software
exports cannot be counted as `merchandise.'
But for this and other such accounting quirks, India would show a merchandise
trade surplus.
Similarly, our strange way of counting Foreign Direct Investment (FDI)
substantially understates the amount of money that the Indian economy is
able to attract.
A recent issue of Businessworld points out that, if we were to use
the norms published by the International Monetary Fund, India's FDI last year
would be $ 8 BB, not $ 2.2 BB which is government's official figure.
(As an aside, using the same IMF norms, China's FDI falls from $ 40 BB to
$ 22 BB.)
In any case, India is now showing a current account surplus.
In contrast, for many years the US economy managed to get away with a huge
trade deficit, since the other countries of the world turned right around
and invested their trade surpluses in the US.
This gave the US a huge surplus on the current account, even if it had a trade
deficit.
But now the trading partners of the US are no longer automatically willing
to reinvest their surpluses in the US.
This is one of the reasons why the current
economic slump in the US has been so prolonged.

The Indian Inflation Rate

The inflation rate in India has been hovering at between 2% and 4% per year
for the past several years.
With salaries increasing at a much faster rate (especially, but not exclusively,
in the software sector), the real incomes have been increasing at a very healthy
rate.
Coupled with the rapid drop in real estate values (possibly because
most of the black money has already been invested in this sector), this implies
that the disposable income, especially in inexpensive
metros like Hyderabad, has just been going through the roof.
This is why there is such an increase in the number of restaurants,
entertainment outlets, etc.

The Indian Job Market

And how about the job market?
Until the dot-com bubble burst in 2000, everyone assumed that the part of one's
career spent in India was just a prelude to one's `real' career, i.e.,
a job in the USA.
Anyone who had the option of going to the USA was considered mad if he did not
exercise that option.
Fresh Master's graduates in computer science
from very ordinary American universities were able
to command starting salaries of $ 60 K per year.
So it was not unusual for kids from middle-class families to take huge
loans to go the USA to do a Master's degree even without any financial
support, since they were sure that (a) they would get financial aid after one
semester, and (b) they could recoup the loan amount and much
more as soon as they finished their degrees.
But now the situation has turned around completely.
With the job market being so bad, many persons in the US are either delaying
their graduation or returning to graduate school.
As a result, Indian students who have gone to the US without financial aid
are being forced to complete their Master's degree entirely on their own money.
If at all a fresh Master's degree holder in computer science is able to get a
job, he will be lucky to get $ 36 K per year -- a drop of 40% from earlier
highs.
I know of many Indian students who have gone to the US taking loans
and still spinning out their degree programs, since they have no hope of getting
a job of any kind.
Some persons I know are compounding their earlier mistake by taking
further loans to do a second Master's degree, all because they don't
want to contemplate returning to India.

Ever since the downturn in the US economy, H1B visa holders in the US
have become an endangered species.
The downturn in the US software industry has not spared even GCH's (that's
`Green Card Holders,' for those of you who don't regularly read the
matrimonial columns).
The bursting of the dot-com bubble was quickly followed by a seemingly
never-ending series of accounting scandals, which makes one wonder how
much of the `growth' of the US economy during the 1990's was real, and how
much was simply a stage-managed mirage.
In fact, many of my US-based friends have told me that, not only has the
software job market disaster claimed literally tens of thousands of jobs, but
there is also no end in sight.

But how about the situation in India?
After growing at the dizzying pace of 50%-plus between 1998 and 2002, last
year the Indian software industry grew by `only' 30%.
Being an ethical company, in Summer 2001 Tata Consultancy Services (TCS)
honoured all the campus recruitment offers it made during the preceding year
and inducted everyone at the originally indicated time.
Other leading software companies did not honour their campus placement job
offers, preferring instead to hide behind the euphemism of putting these
offers `on hold.'
But even these companies did not resort to massive layoffs as their American
counterparts did.
Now, in the Fall of 2002, it is business as usual.
Every large company is hiring by the thousands.
TCS itself is hiring 4,000 persons this year, and others are hiring
similar numbers.
In terms of undergraduate calculus, one could say that so far as the Indian
software industry was concerned, the first derivative has always been
positive.
The second derivative temporarily became negative, but now it too has
turned positive.
Anyone who even thinks about quitting a steady software job in India and going
to the US can only be considered a fool.

The Standard of Living in India

The last point is about the standard of living.
As little as three years ago, I felt that in my lifetime I will not see a day
when a person living in India would opt not to move to the US because he
would not have the same standard of living.
There are plenty of reasons why a person living in India might opt to stay
here, family responsbilities being the most common.
But I never imagined that the inability to maintain one's standard of living
would be a consideration.
Of course, in the software industry, it was not unusual to see a person who
had ten or more years of experience opting to stay on in India, because he
felt that his experience would not be `counted' in the USA and that he would
therefore not command a comparable position abroad.
But it was taken for granted that a person holding a particular level of
position in the USA would always have a better standard of living
than his counterpart in India.
Even I felt the same way.
Again it took the slump in the US software industry to turn things topsy turvy.

In comparing living standards in India and the USA, it is desirable (in my
opinion) to use the so-called `purchasing power parity (PPP)' exchange rate,
and not the official exchange rate.
The PPP was a concept that has been around for many years, and is intended to
measure the different cost of goods and services in different societies.
To illustrate, one dollar equals 48 Rupees.
But one cannot get a good cup of coffee for eight cents (four Rupees) in
the USA, nor a cup of coffee in an air-conditioned restaurant for
thirty cents (fifteen Rupees).
One cannot eat out for one dollar (fifty Rupees), and so on.
Services are also cheaper in a developing society.
One cannot get a flat tire repaired in a roadside shop for eighty cents
(forty Rupees) -- in fact, one is lucky to get it repaired for forty
dollars!
The United Nations formalized this concept in the early 1990's, and started
ranking international economies on the basis of the PPP-weighted GDP
(Gross Domestic Product).
Of course, the GDP itself is a flawed notion and is stacked against developing
countries, because a housewife producing
lunch for her husband is deemed to make no contribution to the GDP, while
a restaurant worker is believed to do so.
But let us not go off at a tangent.
The point is that, when the first PPP-weighted GDP figures came out in 1993,
it was determined that the PPP factor for India was about 4.5.
This factor has remained pretty much constant over time.
This means that in reality the Indian GDP is undervalued by a factor of 4.5.
To put it another way, in reality one dollar should be taken as 10.5 Rupees
(which I will round downwards to 10 Rupees for convenience), and not 48 Rupees.

If we apply the PPP weighting, it follows that a person earning X dollars
per year will have a comparable living standard if he is able to earn 10X
Rupees per year in India.
The question therefore becomes: Is such an expectation realistic?
Even as little as five or six years ago, the answer was in the negative,
even in sunrise sectors such as software.
But thanks to the rapid increase in software salaries in India, coupled
with a deflation in US salaries, the situation has now turned around.
In recent months, I have seen a flood of applications from persons either
living abroad or having recently returned from abroad.
When they apply to TCS, they are naturally obliged to mention their last salary
abroad.
With this data, I can definitely state that TCS is able to offer 10X
Rupees per year to a person earning X dollars per year abroad.
Of course, if a person earns X dollars in, say, Tennessee and 10X Rupees in
Mumbai, his standard living would be much better abroad.
But conversely, a person earning X dollars in Silicon valley would be
much worse off than a person earning 10X Rupees in Hyderabad.
As the Chief Minister of Andhra Pradesh never tires of telling his audience,
one out of four software professionals from overseas is from AP!

I can add one more data point to the discussion.
When I decided to leave the Ministry of Defence after eleven years back in
2000, I explored just two job options.
One was in the US, in a company that belongs to the thirty companies that make
up the Dow Jones Industrial Average, and the other was my present job in Tata
Consultancy Services.
Both jobs were comparable in scope.
The overseas job was as a `Research Fellow' to do what I felt like -- I would
have been just the fourth Research Fellow in that company's R&D set-up.
Similarly, in TCS I became the fifth EVP (Executive Vice President).
At that time, the US salary was numerically just about 10%
of my TCS salary.
So in terms of PPP-weighted income, my TCS salary two years ago
was just about equal to the US offer.
Just two years down the road, my income in TCS has increased by more than
50%, while I imagine that my US salary would not have increased by anything
like this amount.
Clearly I am now better off in PPP terms in my Indian job than I would
have been in the US.

To summarize, at least in PPP-weighted terms, it is now
definitely realistic to expect an Indian salary that is comparable
if not superior to the US salary.

Other Sectors

I have argued that, at least in the software industry, India is able to offer
world-class salaries, at least to persons with about ten or more years of
experience.
Will this idyllic state of affairs spread out from the software sector to other
segments of Indian society?
I am not sure, but I would not rule out the possibility either.
Many in India are convinced that our next success story will be in
biotechnology.
`BT will follow IT' is a fairly commonly-heard slogan.
I myself have launched my company's activities in bioinformatics, an essential
part of biotechnology, so I have studied this market a little bit.
In principle, I don't see any reason why we cannot repeat our IT success in BT.
We have some advantages that apply to both domains, such as a large pool of
reasonably well-trained manpower, attention to detail, and of course, knowledge
of the English language.
India is slowly but surely emerging as the `back office' to the world.

The main worry that people like me have is the apparent inability of India to
compete in the arena of `pure' manufacturing.
Our antiquated labour laws, outdated procedures for customs clearance,
cumbersome rules governing import and export,
our (in-)famous bureaucracy, etc. are all factors that are
working against India becoming a major player in manufacturing.
But apparently all is not doom and gloom.
I see many hopeful signs, all based of course on what I read and hear, not on
personal experience.
Various business magazines have pointed out that, whenever a multinational
company has set up a plant in India, the cost of manufacturing in India has
not been significantly higher than elsewhere, and in some cases it is the
lowest in the world (even lower than in China).
Examples of this are St. Gobain's of France, one of the leading manufacturers
of glass in the world.
Of course, Tata Iron and Steel Company, better known as TISCO, is now the
cheapest producer of steel in the world, notwithstanding our high cost of
electricity, high cost of capital, high cost of rail transport, etc., etc.
So if we decide to make manufacturing a priority, we can make a mark there too.

The Indian economy grew at an `official' rate of about 6% during the last ten
years.
Even at this official rate, the Indian economy has been the second fastest
growing economy in the world during this period, China being the fastest.
But what I see all around me seems to point to much more robust growth than
this figure would indicate.
I have talked to many economics experts about this apparent disparity.
I should emphasize that I have been talking to `real' economists who need to
work and survive in the marketplace, and not the closet Marxists who pass
themselves off as economists and infest Indian academia and newspaper
editorial pages.
What I hear the professional economicsts
saying is that, while Chinese growth figures are based on
somewhat generous interpretations of their performance, the Indian figures
always understate the actual growth.
Over the years we have apparently perfected a system of officially shooting
ourselves in the foot, and repeatedly doing it.
For instance, the services sector, which has been growing at a tremendous clip
in India, is given a very low weight in our official statistics, whereas
static sectors such as agriculture are given a huge weight.
The late (and great) jurist Nani Palkhivala said ``It takes a superhuman
effort to keep India poor.''
Earlier we could count on our netas and babus to supply this superhuman
effort.
Now that the Indian economy has been unshackled a little bit, they are
apparently content to present a picture of poverty and degradation
through the clever use of statistics.
If our babus and netas had a little more imagination, they would reinterpret
our growth figures to present the Indian economy in the best possible light.
Instead they seem to be doing just the opposite.

The Future

Does this mean that India is poised to take over the US as the largest economy
in the world?
Of course not.
The US society has several advantages that have been carefully built up over
time.
There is no way in which India can even close the gap in these advantages,
let alone dream of overtaking the US.
To cite just one example, the US has the best universities in the world,
by a huge margin.
Forget about India -- even the best European universities are nowhere near the
best American universities.
A mediocre American university is miles ahead of a mediocre university
anywhere else.
So far as India goes, our universities are in an abysmal state, and I do not
see any signs of improvement.
Everyone speaks of the politicization of the universities, especially in terms
of the appointment of Vice Chancellors.
But I consider the system of reservations, both in student admissions and
in faculty appointments, to be a far bigger evil.
So I am not at all hopeful that we will have a good university education
system at any time in the near future.

Another advantage enjoyed by the US is its vibrant and dynamic economy.
The US offers a challenging atmosphere in which new technological ideas can be
conceptualized, tried out, perfected (and also rejected), and exploited
commercially.
In contrast with the situation regarding university education,
in this respect I think India is beginning to get its act together.
The Indian economy now demonstrates a surprising
amount of dynamism, with mergers and acquisitions, branding exercises,
competition for customers, and all the other positive aspects that one
associates with the consumer-oriented US economy.
To cite just one instance of this, the charges for cell phones started off
at Rs. 16.80 per minute, and are now down to about Rs. 1.20 per minute
(a reduction by a factor of fourteen) in just about five years.
The recent introduction of WLL/CDMA technology
promises to bring down the prices even further.
Unlike many other economies, our economy is mostly driven by internal
consumption, especially the huge unfilled demands for everything, ranging
from soaps to soap operas.
This is not at all a bad thing.
With our huge internal economy, I believe Indian society
is now beginning to offer an opportunity to aspiring innovators and
technology creators to come up with ``Indian solutions for Indian problems.''
Also, our technological scene is now beginning to mirror the world scene
in areas such as IT, pharmaceuticals etc.
Hence, after a technological solution has been proven in the Indian context,
it can be exported abroad.
This is quite a contrast to the old days, when Indian innovators had no
exposure to the overseas marketplace, and thus had to try and dream up
products and technologies in a vacuum.

One criticism I hear about the Indian technology scene is the absence of
so-called venture capitalists.
I for one have never believed in the `venture capital culture' that
supposedly exists in the USA.
If one studies the years of the dot-com boom carefully, one realizes that
the role of most venture capitalists has been to start new companies and
take them public, not to take them to profitability.
Now that the US stock market is no longer willing to pay astronomical sums
to own shares in loss-making companies, the venture capital culture has pretty
much died out in the US as well.

Another criticism with which I don't agree is the so-called absence of
the `entrepreneurial spirit' amongst Indians living in India.
I think the popular media (both in the US and India) has played a very
undesirable role in defining what an `entrepreneur' is.
According to the media, an `entrepreneur' is someone who starts his own
company.
`I am running a start-up' is the kind of glamorous phrase one is supposed to
toss out at parties, to draw the admiration of all and sundry.
But I must say that I disagree with this viewpoint.
To my mind, an entrepreneur is someone who starts a new venture and creates
jobs.
It does not matter whether `he is his own boss' or not.
In practice, this rather romantic business of being one's own boss often forces
one to take expedient short-term decisions,
instead of concentrating on creating long-term lasting value.
In contrast, when I started the bioinformatics activity in TCS, I had the luxury
of hiring 35 persons without worrying about generating an immediate positive
cash flow.
Because of this, we are able to concentrate on building up our intellectual
assets, which is the only way to become a global player.
What I am saying is that I see plenty of creatity and entrepreneurship amongst
RRI's, even if they don't all rush off and try to `be their own boss.'

Conclusion

The last two years have been truly amazing in terms of demonstrating what
India can expect in coming years.
Thus far only a few tiny cracks have been introduced into the solid wall of
Nehruvian state control that has prevented India from reaching its true
economic potential.
But even with these tiny cracks providing equally tiny openings in our
bureaucratic control mechanisms, Indians have delivered the world's second
fastest growing economy for over a decade now.
The future can only be better, not worse.

Acknowledgements

My thanks to Dr. P. J. Narayanan of the International Institute of Information
Technology (IIIT), Hyderabad, for suggesting that I turn my rantings and
ravings into something a little more coherent.